What’s Your Exit Strategy? Succession Planning for Closely Held Businesses

Business doesn’t come merely with profits, sales, and a bright future; it also comes with a responsibility to customers, employees, and other shareholders. The responsibilities are even higher if you own a closely held company or business.

A closely held company is run by one business owner or a small group of people. The group often consists of family members or closely knit friends. There are various salient features of a closely held business or company, such as the shares are not listed on the security market, more than 50% percent of the stock is owned by up to 5 shareholders, etc.

There are different types of closely held businesses and many ways to run them. This helpful guide focuses on exit strategy planning of closely held companies.

business exit strategy

What is Exit Strategy Planning?

An exit strategy is a plan to transfer the ownership of the business to an investor, management group, or the next generation of the family. It refers to selling a company that affects the business minimally, does not rob the employees of their jobs, and continues making substantial profits in the future after changing hands.

A well-planned exit strategy enhances the business’s value. If done right, it can benefit both business owners and investors greatly.

Moving along the right path can only be possible with correct guidance. The first step in getting an accurate business appraisal in Dallas is choosing the right company for the job. Our experts at Wiley Financial Services will ensure an enhanced business valuation through careful exit strategy planning.

Types of Business Exit Strategies

Business owners may choose to exit their companies due to various reasons, including retirement, illness, or financial challenges. Regardless of the reason, it is crucial for owners to have an exit strategy in place.

There are several types of business exit strategies available for business owners.

Selling the Business

Selling the business is no easy feat. It is complex, takes time, and requires you to get your timing perfect. You can sell it to your partner, your sole proprietorship can be turned into an LLC, or it can be listed as a public company pursuing the sale. You can alternatively sell the business assets.

When it comes to selling a business, careful planning and consideration need to be taken. A well-thought-out action plan can help ensure the sale goes as smoothly and successfully as possible. Here are all the steps you need to make an actionable plan:

Plan Early: The best way to sell a business successfully is to plan at least one or two years before the sale. Planning early will enhance the value of the company, improve your business structure, make it more profitable, and make it more attractive to investors.
Business Valuation: The second crucial step is hiring a professional business appraiser, such as Wiley Financial Services, who can value your business and help you get the best price. Business appraisals in Dallas are the best way for business owners to get an accurate assessment of the value of their company and actionable steps to improve their plans.
Hiring a Business Broker: This step should only be followed when you are selling business to a third party instead of a family member. However, brokers are costly as they earn a percentage of the sale commission.
Prepare Documentation: The next step is to prepare all the relevant business documents. Get your financial statements and tax documents in order, sort suppliers, key customers, asset-related documents, etc., and ensure that all information investors require is available in a suitable form.

Transferring Ownership to Family Members

This is the best option if you are looking to transfer the business without letting the company and its operations get out of your sight. The younger generation can take over, and the business can continue.

It’s important to understand that this method entails huge tax liabilities. For example, transferring ownership to a family amounts to a gift, which is taxable if the amount exceeds $17000 per individual.

The business is considered a gift if the ownership is transferred for less than an arm’s length price. Arm’s length price is the amount that an independent buyer and seller can negotiate in the open market. Find more about gift taxes here.

If you want to transfer your business to family members, you must first determine which family members are eligible for the transfer and whether they are interested in taking over.

Once the younger generation members have been shortlisted, you can start training them. Preparing the future owners for the responsibility is crucial to protect the company and employees’ future.


Public company business appraisals strategy

GRAT is another way of transferring business ownership while maintaining a steady source of income for the owner. GRAT stands for Grantor Retained Annuity Trusts.

This business exit strategy is useful if you have a limited lifetime gift exemption.

Under this strategy, the business owner, aka the grantor, creates a trust. It is an irrevocable trust which the trustee maintains. The beneficiaries of this trust are transferred the business’s share after the end of the annuity period.

Under this arrangement, the owner receives the yearly annuity amount for a specific period, and the trustees have sole discretion on the business assets. The annuity is paid out of the trust principal if the trust doesn’t earn sufficient funds in any year. In the end, the business is transferred to the beneficiaries without any huge gift tax liabilities.

Contact Wiley Financial Services today to learn the nuances of GRAT. Our team of experts can break everything down for you and make it easy to understand.

Going Public Through an IPO

One of the most common ways companies transfer ownership is through an IPO or initial public offering. By going public, a company can sell shares of stock to investors and raise capital for future growth and expansion.

You need to register as a public company and conduct an Initial Public Offering with the help of underwriters. When the shares of a company are offered to the public for the first time, it is called an IPO.

There are numerous regulatory procedures, and it is not an easy task. The regulations after forming a public company are even stricter than those of a privately owned company.

By Liquidation

This is always considered the last resort for companies to undergo liquidation and shut the business doors for good.

It is the least lucrative option but the only option when things are going south, and you cannot continue the business further.

You lose customers, your employees lose their jobs, and you lose the business. Assets are sold, liabilities are settled, and you keep whatever is left as the owner.

Though it is not a good business exit strategy, it should be considered as a last resort.

Exit Your Business in Style

Exit strategy planning requires business valuation, which can help you attract potential investors.

Wiley Financial Services is here to help you at every step of your journey. Business appraisals in Dallas are important to making an informed exit strategy. Our team of professionals can help you figure out the best options for you, while our valuation team can offer lucrative insights about your business so that you can negotiate the best terms with investors.

Contact us today and let us provide you with all the details you need to make an informed decision!